Budget Experts Razz Dole's Tax-Cut Plan

Republican candidate Bob Dole's economic plan, with its 15 percent across-the-board cut in income taxes, does not get rave reviews from three Washington budget experts.

"I used to be a Bob Dole fan," grumbles Bob McIntyre, director of Citizens for Tax Justice. "But if Bob Dole was an adult in his Senate career, he has regressed since then."

"There is a lot of foolishness in this package," says Robert Reischauer, who headed the Congressional Budget Office from 1989 until March 1995 and is now at the Brookings Institution.

Richard Kogan, a Center on Budget and Policy Priorities economist, says the Dole plan "has gone off the edge of the earth."

All three also criticize President Clinton's plan for a balanced budget by 2002. "He couldn't get the domestic spending cuts envisaged in it," Mr. McIntyre says. "Both plans are unrealistic," says Mr. Reischauer. Kogan agrees.

None of the three wants the federal government shrunk to the degree implied by Mr. Dole's proposals. "This nation is not in need of a tax cut," Reischauer says. "It is in need of a tax increase, if anything."

Total tax revenues collected by all governments in the United States equate to 29.7 percent of gross domestic product, the total output of goods and services in the nation, notes a new report by the Organization for Economic Cooperation and Development in Paris. That is less than one percentage point more than in Japan and Australia. Taxes in other industrial nations, many with socialized medicine, take a larger slice of GDP. The average is 39.4 percent.

McIntyre's chief complaint is that Dole's plan would primarily benefit the rich. Three-fourths of all families, those making $50,000 or less, would get less than 25 percent of tax savings. The richest 1 percent of families would save an average $25,000 a year in taxes and get 28 percent of the total cuts, he calculates.

Reischauer doubts Dole's tax cuts would have anywhere near the supply-side boost to economic output and savings claimed by such supporters as Steve Forbes and Jack Kemp. And the proposed cuts in the capital-gains tax would revive tax shelters (aimed at shifting investment profits from income to lower-taxed capital gains), he says. "It is best to keep your eye focused on the ball, which is deficit reduction," Reischauer adds.

He doesn't expect Dole to be elected president. But if he did win and the Republicans increased their majority in both the Senate and House, he can imagine a euphoric Republican Congress passing much of the Dole plan. Republican conservatives would claim their goals validated by the vote, he says.

"But two years later, as the ramifications of spending cuts [not specified in the Dole plan] became clear, there would be a reaction," Reischauer says. The Republicans would lose at the polls.

Kogan criticizes the Dole plan, with its estimated $548 billion in tax cuts spread over six years, in numerous ways:

*The capital-gains tax cut treats people with higher incomes better than those with lower incomes. Those in top brackets see capital-gains taxes halved to 14 percent. He says a widow with much less income gets a one-third cut, from 15 to 10.5 percent.

When fully phased in after perhaps 15 years, the revenue loss from the capital-gains tax cut would be $10 billion to $20 billion per year, instead of the $2 billion a year in the plan, Kogan says.

*Revenue from the 1993 boost in income taxes on retirees' Social Security benefits was allotted to the Medicare trust fund. Repeal of this measure would mean that the fund would lose $27 billion over the next six years and thus run out earlier.

*The plan says a $500 tax credit for each child would cost $75 billion. But the Republican budget resolution put the six-year cost at $122 billion. So, Kogan figures, the Dole plan must target the credit to only those in the middle class or delay its coming into force until well after 1997. The poor pay little in income taxes and would thus benefit little from a child tax credit, he adds.

*Though Dole says Medicare, Social Security, and defense won't be touched, his plan assumes saving $186 billion through lower growth in Medicare spending planned but not yet voted on by the Republicans in Congress. "Misleading," Kogan says.

*Kogan's somewhat complex calculations find that nondefense discretionary programs would have to be cut 36 percent to offset the tax cuts. This he regards as "politically incredible," since it would hit all sorts of popular programs.

"How is this plan going to work?" he asks. "My view is it can't."